How to Address Inequality

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Inequality has received a lot of attention lately, particularly in two arenas where it had not previously received as much: American public debate and the International Monetary Fund.  A major driver is the observation in the United States that income inequality has now returned to the extreme levels of the Gilded Age.  (The share of income held by the top 1% rose from 8% in 1980 to 19% in 2012, a level last seen in 1928, and probably the highest among advanced countries.  The share held by the top 0.1% rose from 2% to almost 9% currently, a level least seen in 1916. And mobility remains as low as ever.)  Inequality remains high in Latin America and has increased in many other parts of the world as well. read more

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ECB QE via FX: Plan B

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My post last month was a proposal for the European monetary authorities to pursue Quantitative Easing, not by buying euro bonds, but by buying dollar bonds.   I also presented this idea in a speech at a conference sponsored by the Dallas Fed, April 4, “Why the ECB Should Buy US Treasuries.”

But what if the ECB is told by the international community, especially the US, that it doesn’t want them to push the euro down against the dollar, that it fears a re-ignition of the currency wars?   And what if the ECB concludes that it can’t buy US treasuries without US agreement?   After all, it was only February of last year that the G-7 Ministers and Governors agreed not to try to influence exchange rates. read more

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Considering QE, Mario? Buy US Bonds, Not Eurozone Bonds

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         The ECB should further ease monetary policy.  Inflation at 0.8% across the eurozone is below the target of “close to 2%.”  Unemployment in most countries is still high and their economies weak.  Under current conditions it is hard for the periphery countries to bring their costs the rest of the way back down to internationally competitive levels as they need to do.  If inflation is below 1% euro-wide, then the periphery countries have to suffer painful deflation.  read more

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